Free Markets, Free People

Economy

How Obama’s Keystone XL tantrum will cost the US

Not that President Obama will much care. 

As you know, if you’ve followed the news, a few months back, President Obama stopped the building of a critical oil pipeline from Canada’s oil sands in a fit of pique at the GOP for demanding a decision sooner rather than later.  His excuse was it hadn’t been studied enough even though his own State Department had unofficially announced they were satisfied with Trans Canada’s application and environmental studies and prepared to okay the project.

A huge outcry ensued and as he usually does, Obama tried to blame his decision on someone else.  The result of his decision, of course, was to further delay the transport of up to 800,000 barrels a day of crude oil from Alberta’s oil sands to our Gulf Coast refineries.  He essentially turned down an increase in safe and secure oil that is strategic to our economic growth and national security.

But it has had even more profound effect for the long term.  Most people are pretty sure that the pipeline will eventually be built.  However the sweet deal it offered us prior to the President’s turn down is no longer available.  It is because the refusal pointed out that Canada couldn’t depend on the US to be a reliable trading partner:

In a public one-on-one interview here with Jane Harman, head of the Wilson Centre think-tank, [Canada’s Prime Minister Stephen] Harper said Obama’s rejection of the controversial pipeline — even temporarily — stressed Canada’s need to find other buyers for oilsands crude.

And that wouldn’t change even if the president’s mind did.

“Look, the very fact that a ‘no’ could even be said underscores to our country that we must diversify our energy export markets,” Harper told Harman in front of a live audience of businesspeople, scholars, diplomats, and journalists.

“We cannot be, as a country, in a situation where our one and, in many cases, only energy partner could say no to our energy products. We just cannot be in that position.”

Of course there’s no particular problem finding new customers.  China, naturally, was waiting in the wings for us to shoot ourselves in the foot and when we obliged them, they stepped right in.

That, of course, has another effect:

Harper also told Harman that Canada has been selling its oil to the United States at a discounted price.

So not only will America be able to buy less Canadian oil even if Keystone is eventually approved, the U.S. will also have to pay more for it because the market for oilsands crude will be more competitive.

That’s right, we get less and it will cost more. 

We have taken a significant price hit by virtue of the fact that we are a captive supplier and that just does not make sense in terms of the broader interests of the Canadian economy," Harper said. "We’re still going to be a major supplier of the United States. It will be a long time, if ever, before the United States isn’t our number one export market, but for us the United States cannot be our only export market.

"That is not in our interest, either commercially or in terms of pricing."

Congratulations Mr. President, with your childish fit of pique you’ve managed to again do something that will help achieve your goal of seeing energy prices “skyrocket”.

And the people you profess to be looking out for, the poor and middle class, are those who will pay the most for your tantrum.

~McQ

Twitter: @McQandO

Economic Statistics for 3 Apr 12

The following statistics were released today on the state of the US economy:

Factory orders bounced back from a -1.1% decline in January with a 1.3% increase in February.

ICSC-Goldman Store Sales did well last week, with a 3.8% rise for the week, which is a 4.2% from last year. Redbook also reports a strong 4.6% year-on-year same-store sales increase.

Auto sales are due out, with the figures released throughout the day.

UPDATE: The Big 3 have reported Auto sales so far today. Overall Sales for GM were up 14.2% in march from the same period in 2011. Chrysler reports a 34% increase from last year, for its best monthly sales in 4 years. Ford’s sales gain was a much more modest 5%, but was still the best monthly sales rate since 2007, and suffers from the comparison to Mar, 2011, when Ford led all US auto sales for the first time in 13 years.

Also reporting in are Nissan, reporting their best sales ever, and Toyota, reporting the best sales since March 2008.

Dodge also announced that the reborn Dart will be hitting sales floors this June. I suspect the new Dart, which will take up a spot in the small-car lineup, will be somewhat less performance-based than the 318ci V-8 powered ’71 Dart I had as a High School Senior.

~
Dale Franks
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Quote of the Day: Unemployment reality check edition

James Pethokoukis provides us with the quote (a little context when you hear all the “sunshine and roses” employment reports):

[T]o restore the job market to the state it was in back in 2007, before the recession, would require the creation of 14.8 million jobs in today’s terms, a daunting task to say the least.

FRED supplies the graphic:

 

040212obamajobsgap

 

Enough said.

~McQ

Twitter: @McQandO

Economic Statistics for 30 Mar 12

The following statistics were released today on the state of the US economy:

Personal income rose 0.2% last month, while personal spending rose 0.8%. On a year-over-year basis, income rose 3.2% while spending rose 4.1%.The PCE Price Index, an inflation indicator, rose 0.3% for the month, and 2.3% for the year. The core PCE rose 0.1% for the month, and 1.9% for the year. Analysts had expected significantly higher consumer spending increases.

The Reuter’s/University of Michigan’s consumer sentiment index continues to improve, rising to 76.2 in the latest 2-week period.

The Chicago PMI indicates business activity remains strong, though growth has slowed a bit, to 62.2 from last month’s 64. Any reading above 50 generally indicates economic expansion. This report is often seen as a precursor to the national PMI, due out Monday.

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Dale Franks
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Economic Statistics for 29 Mar 12

The following statistics were released today on the state of the US economy:

The Commerce Department’s final estimate for 4Q GDP was 3% annualized, matching analysts’ expectations.

Initial jobless claims in the March 24 week fell 5,000 to 359,000 from a revised 364,000 in the prior week.

Corporate profits in the fourth quarter shrank to $1.494 trillion annualized, compared to $1.502 trillion in the third quarter.

The Bloomberg Consumer Comfort Index rose to -34.7, simultaneously a recessionary reading, yet the 2nd highest in four years.

~
Dale Franks
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Economic Statistics for 28 Mar 12

The following statistics were released today on the state of the US economy:

The MBA reports Purchase Applications rose 3.3% last week.  Sadly, re-fis dropped -4.6%, so overall mortgage applications fell -2.7%

Durable goods orders rose 2.2% in February, which is up 12.2% from February, 2011. Ex-transportation, orders rose 1.6% for the month, 8.5% from last year.

~
Dale Franks
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Economic Statistics for 27 Mar 12

The following statistics were released today on the state of the US economy:

Retail sales look lackluster according to ICSC-Goldman, whose year-on-year same-store sales increase is only 2.7% for the week. Redbook is more positive, though, with a same-store sales increase of 3.8%.

The S&P Case-Shiller Home price index was unchanged for the month on a seasonally adjusted basis. Unadjusted, however, the index is down -0.8% for the month, and -3.8% from last year.

Consumer Confidence dipped slightly in March, to 70.2 from 70.8 last month.

The Richmond Fed Manufacturing Index fell to 7 in March from 20 last month.

~
Dale Franks
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Why “tax the rich” rarely lives up to expectations

Bruce Bartlett takes a look at Britain’s experience and a study that documents it and concludes the same is probably true for here:

The study concluded that the behavioral effect of raising the top rate was much more powerful than anticipated. Two factors in particular had a large effect on revenues.

There was a timing effect. People moved income that they anticipated receiving forward so it would be taxed before the new higher rate took effect. They also postponed the receipt of income into the future in anticipation of a change in the tax rate after the election of a new government.

Also, because the British top rate had increased above that in all other major countries except Japan, many Britons relocated in reaction. For example, 1,379 people in high-income occupations moved to Switzerland in 2010, a 29 percent increase over the previous year.

The point, of course, is those who fall in the bracket in which the tax is increased are going to do what is necessary to minimize the impact of that tax.

Human nature 101.  Consequently, the revenue projections are almost always high – and wrong.

Additionally, the Democrats like to imply that taxing the rich is a panacea for the spending problems we have.  In the name of “fairness” they imply that if the rich would only pay their “fair share” well everything would be hunky dory.  Of course we know the real problem is spending not revenue.  But regardless, the real effect of the “Buffet Rule” for instance, is negligible:

But a March 20 analysis from Congress’s Joint Committee on Taxation estimates that implementation of the so-called Buffett rule, which would require those making $1 million or more a year to pay an effective federal income tax rate of at least 30 percent, would raise only $46.7 billion over the next 10 years. That’s a drop in the bucket compared with the $41.2 trillion in federal revenues expected to be collected under current law.

Note that last number and remember, this is a government which is claiming that it can’t get by on $41.2 TRILLION over 10 years.

Where again is the problem?

~McQ

Twitter: @McQandO

The economy: A little graphic context

This chart will blow you away (via James Pethakoukis):

 

032612gapingmaw

 

The NY Fed explains:

The first figure shows how these three labor market variables evolved over the four post-1973 business cycles (excluding the short 1980 cycle), along with developments in the Great Recession and current recovery. We start at the lowest level of the unemployment rate before the recession and then follow the changes for three years after the rate reaches its maximum level. For the current expansion, the maximum unemployment rate occurred in October 2009.

The employment-to-population ratio displays a classic V-shape recession and recovery pattern in the 1970s and 1980s. In the recession and recovery of the early 1990s, however, the employment-to-population ratio instead displays a U shape, only returning to its pre-recession level three years after the peak in the unemployment rate. In the recession and recovery of the early 2000s, neither the participation rate nor the employment-to-population ratio returns to its previous level, so we see an incomplete U-shape pattern.

In the most recent cycle, the employment-to-population ratio traces out an L shape, but the unemployment rate falls because the participation rate declines substantially (a much more gradual decline was expected by many given the aging of the baby boomers); in other words, a larger share of the population is out of the labor force rather than participating and being unemployed.

We’ve seen a lot of happy talk about how well the economy is doing now.  Most of that comes from the media which has about as much of a grasp on the economy and how it works as does the current occupant of the White House.

A look at those four recessionary cycles gives context to the depth of the one we’re currently battling.    If you look closely at the part of the chart depicting our current situation, you realize that while we’ve seemingly bottomed out, the employment-to-population ratio is not rising.   And that, of course, is because of the horrendous drop in the labor force participation.

It points out two things – one that the “official” unemployment rate should be taken with a grain of salt.   And two, that the stimulus had little apparent effect (sorry, but I don’t buy the “it could have been worse” argument.  We have no way of knowing that) if the purpose was to shorten the recessionary cycle and keeping employment below 8%.  It did neither of those things.

Finally, no matter what numbers and happy talk the media and administration throw out there, unemployment and the state of the economy are a very personal things to voters.  Those who remain unemployed certainly aren’t seeing an “improvement” in the economy from where they sit.  And it is from there they’ll make their decision as to who they’ll vote for in November.  All the media smoke and mirrors about the improving economy aren’t likely to sway those who remain unemployed or are underemployed to see it their way.  They’ll, instead, vote the reality of their situation and are unlikely to vote for the candidate who they feel has done little to ameliorate their situation.

~McQ

Twitter: @McQandO